Financial market developments and their implications for monetary policy

BIS Papers No 39
April 2008

This volume features eight papers written for the conference "Financial market developments and their implications for monetary policy". The event was jointly organised by the BIS Representative Office for Asia and the Pacific and Bank Negara Malaysia in Kuala Lumpur on 13 August 2007. Drawing upon experiences in the Asia-Pacific region and beyond, these papers characterise the key financial market trends and developments over the past decade and assess their implications for three aspects of monetary policy: (a) the formulation of policy and the transmission mechanism, (b) the implementation of policy at the operational level, and (c) the use of financial market information in the policy process.

JEL classification: E44, E50, E52, E58, F36

Keywords: financial market development, financial intermediation, financial market indicators, monetary policy, monetary transmission mechanism, market operation, Asia and the Pacific

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	Page
Foreword	iii
Programme	v
Participants in the meeting	vii
Conference summary	1
Opening remarks Dato' Ooi Sang Kuang	5
Key developments in the financial landscape
Financial globalisation: key trends and implications for the transmission mechanism Már Gudmundsson	7
Capital, carry, & complacency: key developments in the financial landscape - dynamics of the foreign exchange market and capital flows Brendan Fitzsimmons	30
Impact on the formulation of monetary policy
Impact of financial market developments on the monetary transmission mechanism Sukudhew Singh, Ahmad Razi, Norhana Endut and Helmi Ramlee	49
The changing nature of financial intermediation and its implications Hans Genberg	100
Impact on the conduct of monetary policy
Financial market innovation in Australia: implications for the conduct of monetary policy John Broadbent	114
Developing financial markets and operating monetary policy in Asia Robert N McCauley	126
Usefulness of financial market indicators for monetary policy
Using financial market information in monetary policy: some examples from New Zealand Clinton Watkins	142
Equity prices as leading indicators: the Asian experience Kenneth N Kuttner	167